DTAA Between India and UAE

Many Indians living and working in the UAE are unaware that while their UAE income is generally not taxable in India as non-residents, income earned from Indian sources may still be taxable in India. Since the UAE does not impose a personal income tax, NRIs avoid double taxation. However, they are still liable to pay tax in India on Indian sources, such as rent or interest from NRO fixed deposits. In this, the Double Tax Avoidance Agreement (DTAA) between India and the UAE ensures that persons are not taxed twice on the same income. Most UAE-based NRIs are unaware of this tax advantage. Considering this, the DTAA between India and the UAE provides several tax reliefs and deductions and covers income sources such as interest, salaries, royalties, and dividends.

Want to know more about this? This blog explains how the DTAA between India and the UAE works, what it covers, and how UAE-based NRIs benefit from it. So read on and gather all the information.

What is DTAA Between India and UAE?

The Double Taxation Avoidance Agreement between India and the UAE was signed in 1993 and has been revised several times since. As the name states, this agreement ensures that individuals and companies with the same income do not pay tax twice. It helps taxpayers to avoid confusion about income tax and tax burden across borders.

Since the UAE does not impose personal income tax, Indians earning in Abu Dhabi or Dubai get the benefit from lower tax rates through the DTAA agreement. The agreement determines which country has the primary right to tax specific categories of income and provides relief where overlapping taxation may arise.

Apart from promoting fair taxation, the DTAA between India and the UAE also encourages investment and commerce between the countries.

This was all about the taxation treaty between India and the UAE. Moving ahead, let's know how this DTAA agreement is different from other DTAAs.

How is India-UAE DTAA Different from Other DTAAs?

The India-UAE Double Tax Avoidance Agreement is different from other DTAA because it follows the unique tax system of the UAE. As mentioned earlier, the UAE does not impose any personal income tax and has broader definitions for setting a business presence and specific rules for capital gains, which makes it different from other DTAA agreements.

In simple words, you can say that The UAE's tax system can offer tax advantages to many NRIs because the country generally does not impose personal income tax on individuals. However, India still has the right to impose tax on certain India-sourced income types regardless of the treaty.

• What India Still Taxes for UAE-based NRIs:
• Capital gains from Indian assets.
• Rental income from Indian property (taxed in India, credited to zero in the UAE).
• Dividends from Indian companies.
• Interest on NRO accounts (TDS at 30% or less under DTAA treaty)
• What Generally Not Taxed in India for UAE NRIs:
• UAE-sourced business income.
• UAE employment or salary income.

Confused? Let's understand the India-UAE Double Taxation Avoidance Agreement with an example.

Mr. A is an NRI living in the UAE. From an Indian NRO savings account, he earns INR 5,00,000 interest income. Without the DTAA between India and the UAE, the Indian bank deducts up to 31.2% TDS at the standard rate, resulting in INR 1,56,000 in taxes. Under DTAA, the TDS rate is capped at just 12.5%, reducing the tax outflow to INR 62,500.

So this is how the DTAA between India and the UAE is different from other DTAA agreements. Moving further, let's know who qualifies as a UAE tax resident for DTAA.

Who Qualifies as a UAE Tax Resident for DTAA?

Holding a UAE-residency visa does not qualify you for the India-UAE tax treaty benefits. Considering this, to qualify, you should:

• You have lived in the UAE for 183 days or more in the relevant financial year.
• You are physically present in the country for 90 days or more within a consecutive 12-month period, provided you are a resident permit holder, UAE citizen, or GCC national. Additionally, you hold a permanent place of residency and carry on a business or employment in the UAE.

Furthermore, a company is stated as a UAE tax resident if it is incorporated within the UAE and is controlled and managed within the country. Now, moving forward, let's know the taxes covered under the agreement between the two countries.

What Are the Taxes Covered Under DTAA?

Although the UAE does not impose any personal income tax on individuals. However, there are other taxes that individuals are liable to pay in the country. For instance, corporations need to pay corporate taxes. Article 2 of the DTAA between India and the UAE mentions the taxes covered under this agreement.

Considering this, all taxes imposed on total income, capital, and taxes on gains from selling immovable and movable property are considered capital and income tax. Here is the list of taxes covered in the agreement between both countries:

• In the case of the UAE:
• Income Tax
• Corporation Tax
• Wealth Tax
• In India
• Wealth Tax (Indian Tax)
• Income Tax, including any surcharge
• Surtax

The DTAA agreement is only applicable to identical income and capital taxes imposed at the Federal or State level, either in the tax place or in the contracting state. 

Now, moving ahead, let's know about the India-UAE DTAA tax rates.

India UAE DTAA Tax Rates

The table below showcases the India-UAE DTAA tax rates on different incomes:

Apart from this, on interest income, TDS is imposed at 12.5% in the UAE. Additionally, the DTAA between India and the UAE also states that income generated from the immovable property should be taxed in the country where it is located.

Now, moving further, let's know taxation on capital gains under the DTAA between India and the UAE.

Capital Gains Taxation Under DTAA Between India and the UAE

Article 13 of the India-UAE DTAA focuses on the tax policies associated with capital gains. Here are some rules that you need to follow in case of capital gains:

• A resident of one contracting state may be taxed in the country where the immovable property is situated. It has the primary right to tax any income or capital gains generated from its sale.
• Capital gains generated from the sale of shares in a company whose primary assets consist of an immovable property can be taxed in the country where it is located rather than where the seller lives.
• Capital gains arising from the transfer of shares may be taxed according to the provisions of Article 13 of the DTAA and the applicable domestic tax laws.

However, if the taxpayers receive capital gains from selling any other property type that is not covered above, they are liable to be taxed in the state where they live. Moving ahead, let's know how DTAA eliminates double taxation.

Elimination of Double Taxation

Article 22 of the India-UAE DTAA addresses the measures for reducing double taxes on foreign income. Some provisions are:

• Any Indian resident who generates income or capital according to the provisions of the convention may need to pay taxes in the UAE. Here, India will provide you with a tax deduction equal to the income tax or capital tax paid in the UAE.
• Tax deductions will not be more than a part of income or capital tax, as calculated before the provision of tax deduction to the taxpayer.
• Where, under the agreement, a UAE resident needs to pay taxes in India, the UAE should provide a tax deduction on the personal tax amount equal to the income tax paid in India. Here, the tax deduction allowed by the UAE should not be more than the UAE taxes on the income.

This is how the DTAA agreement eliminates double taxation. Moving further, let's know how to obtain a tax residency certificate (TRC) from the UAE Federal Tax Authority.

How to Obtain a Tax Residency Certificate (TRC) from the UAE Federal Tax Authority?

Follow the steps below to obtain a tax residency certificate (TRC) from the UAE Federal Tax Authority:

• Step 1: First, check whether you are eligible to obtain a TRC or not. You can verify this by knowing whether you have lived for 183 days or more in the country in a financial year.
• Step 2: Visit the UAE FTA Portal. If you already have an account, log in; if you do not have one, first create one.
• Step 3: Submit the following documents and apply for the TRC:
• Valid passport
• Copy of UAE residency visa
• Emirates ID copy
• Title deed or tenancy contract
• Employment contract or salary certificate
• UAE bank statement for the relevant period.
• Step 4: Pay the application fee, i.e., AED 50, and the TRC fee, i.e., AED 500. Before applying for TRC, it is advisable to check the current fees on the portal.
• Step 5: Once your application is successfully verified, the TRC is generally issued within the timeline prescribed by the UAE Federal Tax Authority. This certificate is valid for one financial year. Considering this, for the next financial year, you need to apply for a new one.

Once you get the TRC certificate, submit it along with Form 10F to every Indian entity paying you income, i.e., mutual fund house, bank, or tenant, to ensure TDS is deducted at a lower DTAA treaty rate.

Now, moving ahead, UAE-specific mistakes NRIs should avoid when claiming DTAA benefits.

UAE-Specific Mistakes NRIs Must Avoid

Here are some of the UAE-Specific Mistakes NRIs should avoid:

These are some of the key mistakes UAE-based NRIs should avoid.

Final Thoughts

Lastly, as an NRI, understanding the DTAA between India and the UAE is important for knowing your tax obligations. It helps in avoiding double taxation, clarifies your tax obligations, and ensures that income earned in the UAE is handled transparently and fairly.

If you are facing issues in the India-UAE DTAA, connect with Savetaxs. We have a team of professionals who provide you with personalized guidance as per your tax situation. With our convenient online tax consultation, you can contact us from anywhere in the world.